The Current Transactional Market for Practices – What We Know Today!

For around twenty years now the professions have been preparing for the increased departure of practitioners as the Baby Boomers hit retirement age and during this time there have been a couple of factors that have been influential upon this expected trend. One was frenetic activity of the consolidators and aggregators amongst the accounting profession in the late 1990’s and into the 2000’s, which had varying degrees of success. Also over a similar timeframe was the consolidation of financial planning firms and advisers, in many instances by financial institutions, to form vertical distribution channels. For the FP industry, this started to unpack most notably as a result of the Royal Commission, with the additional educational requirements for advisers also forcing the hands of many, in numerous cases, the more senior advisers, who chose not to retrain, but instead leave the profession, resulting in what could arguably be considered the most significant decline in licenced financial advisers in history. Whilst we have noted the return of some forms of consolidation within the accounting profession, it’s certainly not in the same form as those heady days twenty years ago.

Another factor influential in the delay of these exits taking place was the fact that practitioners were generally working longer, with a retirement age of 65, 70 or 75 years not uncommon, and in some instances beyond this. Furthermore, a small proportion still do have the ‘die at the desk’ mentality, which whilst satisfying their needs, is probably unlikely to benefit their broader family.

However, what we also do know is that around 2018/2019, a small sample study suggested that some 51% of accounting practice equity holders were going to exit their firms in the immediate five years. Now whilst the sample size was only a couple of hundred practitioners at best, even if we said this figure was 33% or 25%, that remains a considerable number of practitioners seeking to realise some value for their equity. For some that will be via an external sale, whilst for others this will take place via internal succession.

But then we hit March 2020 and all hell breaks loose. COVID becomes a worldwide pandemic and accountants were thrust into helping their clients stay alive and remain afloat. There was no time for consideration of retirement, it was, and has been 2 – 3 years of keeping on top of government announcements.

However, fast forward to the present day, and the ability for practitioners to exit their firms has returned. With only around 10% of vendors utilising the services of practice brokers, and with the ever growing increase in the number of practices for sale in the open marketplace, it would seem now is the time for some equilibrium to return between buyers and sellers, resulting in greater diversity in the terms and conditions being offered and accepted in the market. To date, it has been very much a seller’s/vendor’s market. Our expectations were that we would see a broader range of prices being offered. We have certainly seen some changes amongst payment terms more recently.

Transactional negotiations prior to Christmas did tend to reflect a changing market, perhaps heading more in favour of purchasers. However, post Christmas, the reversal of that change is remarkable. The level of interest in most acquisitions has jumped through the roof, this is despite rising interest rates and other local and broader conditions. Current deals under negotiation, and their terms, are like nothing else I have experienced, which sounds the bells for those considering the sale of their firm. Now is definitely the time to go to market if you have an attractive practice, are well located, have a realistic approach to terms, and want to achieve a successful outcome in what is probably the best market conditions in some time.

Whilst we head into March 2023, a transaction date of July 1 remains possible, however action is required now. For a completely confidential obligation free discussion around what your practice may fetch in an open market sale, please contact Michelle directly on 0413 047 077 or via email – michelle@robknightsbroking.com.au.